DOE SAYS OIL SUPPLY CRISIS MEASURES WORKING

The U.S. Department of Energy says its proposals to lower U.S. oil demand and increase U.S. oil production are working.

DOE announced the initiatives after Iraq's invasion of Kuwait rocked the world market (OGJ, Aug. 20, p. 36, and Sept. 24, p. 52).

SUPPLY/DEMAND BALANCE

Energy Sec. James Watkins said, "While the estimated loss of 4.3 million b/d of Iraqi-Kuwaiti crude has been made up for on the world market, U.S. net imports are down about 1.5 million b/d from the same period last year, and demand has declined about 5% since August.

"The reduction in U.S. imports and demand for oil is the result of price increases and the conservation, efficiency, and production measures we have taken."

DOE and the Advertising Council have launched a public information campaign to promote energy efficiency and conservation. Six conservation advertisements have been distributed to radio stations, print ads have been sent to newspapers, and other advertising will appear on 3,000 billboards.

DOE noted some major oil companies have begun their own oil conservation campaigns, Petroleum Marketers Association of America is distributing 5 million brochures on efficient oil heating to consumers in the Northeast and Midwest, and National Association of Manufacturers is sending its 13,000 members conservation data.

CONSERVATION PUSH

Watkins late last month issued an executive order mandating federal energy conservation and cuts in government energy costs borne by taxpayers.

The order, drafted in response to a request from 65 congressmen in September ' will be submitted to President Bush for approval.

"Energy expenditures Of more than $8 billion/year provide a clear opportunity to improve federal energy management and reduce energy costs to the taxpayer."

Johnson Controls Inc., Milwaukee, estimates that cutting energy use in federal buildings by 20% would cut government energy outlays by $1 billion/year.

INCREASED PRODUCTION

DOE said Prudhoe Bay field operators have increased production by about 300,000 b/d since the first of September, about half in response to an administration request to hike production and the rest due to completion of scheduled maintenance programs.

"DOE is continuing its work to increase production of Alaskan oil by assisting in the resolution of issues revolving around regulatory requirements for bringing various Alaskan fields on line, such as Pt. McIntyre and Niakuk," it said.

In response to its requests, DOE said Texas Railroad Commission increased allowables 28,000 b/d and Federal Energy Regulatory Commission is considering removing regulatory obstacles to the construction of gas pipelines to new markets, and Chevron Corp. announced plans to start up flow from Point Arguello oil field off California.

SPR TEST DRAWDOWN

Meanwhile, DOE completed its test drawdown and sale of 3.9 million bbl from the Strategic Petroleum Reserve.

The last 250,000 bbl was delivered Dec. 2 to Phibro Energy Inc. of Greenwich, Conn., one of 11 firms selected in October to purchase oil in the test.

Watkins said, "The test sale should remove any doubts the SPR bidding and distribution system can function effectively and expeditiously. The system and the people who ran it performed virtually flawlessly and on schedule throughout every step of the sales process.

"Equally important, the private sector now has valuable experience in working with the SPR should we ever be forced to use it during an actual energy emergency," he said.

The sale reduces to about 585 million bbl the oil stored in underground salt caverns along the Gulf of Mexico coast. The storage sites are linked to terminals and docks that move crude oil into the nation's commercial oil distribution system.

During the test, 26 separate shipments of crude were made from three of the Reserve's six storage sites. The first shipment took place Oct. 19, two days after initial contracts were awarded, to meet an expedited request from one of the purchasers. Most deliveries were in November under normal scheduling practices.

About 3.7 million bbl of the 3.9 million bbl were shipped by pipeline and the remaining 255,000 bbl by barge.

Although actual payments have not all been computed, DOE said the purchase price will average about $30.10/bbl for sour crude to $33.30 for sweet. Those prices are about 13% below average winning bid prices because of adjustments under a price indexing system DOE used to track changes in the market price of various crudes.

DOE plans to release an analysis of the test sale, including evaluations from industry, early next year.